Debt relief options in a struggling economy
A tough economy and continuing pandemic are leaving many Americans behind. Being in debt, faced with cuts in health insurance coverage, unemployment or reduced hours, many people are feeling like it will never end. Fortunately, there may be short-term relief for millions who whose mortgages are backed by government entities such as Freddie Mae and Freddie Mac and the departments of Veterans Affairs and Housing and Urban Development.
More than 11 million mortgages are guaranteed by the VA, HUD and the Department of Agriculture, according to Brian Deese, President Biden’s pick for Head of the National Economic Council. Biden already signed an extension of the current moratorium on evictions and foreclosures until March 31.
Just before the Inauguration, the Federal Housing Finance Agency extended moratoriums on Freddie Mae and Freddie Mac-backed mortgages until February 28. The new administration is poised to resurrect Obama-era protections to keep mortgage servicers from initiating a foreclosure while the homeowner is attempting to negotiate a loan modification.
Even though foreclosures currently remain at record lows thanks to moratoriums in place since the pandemic hit last year, mortgage delinquencies seriously past due (by 90 days or more) in November were 1.8 million higher than pre-pandemic levels.
Whether or not to foreclose
There are situations where foreclosure may seem like a better option than trying to hold onto the family home. Having an underwater mortgage, for example, where the principal owed is greater than the current market value of the home, may seem to point to foreclosure as the best route.
In a strategic default, the homeowner stops payments and allows the home to go into foreclosure. Unfortunately, this option can end up affecting your credit score for many years, and you can wind up in debt anyway.
A foreclosure will remain on a person’s credit report for seven years, which means it will be more difficult to obtain a car loan or get lower interest credit cards during that time. And if the sale price in the foreclosure does not cover the balance of the mortgage, the lender can go after the homeowner for the balance. In Michigan, this is called a deficiency judgement.
For families in Southfield and Detroit, finding options to either keep the home or manage debt is extremely important in the current economic climate. It may be best to seek knowledgeable legal counsel that can help you to find options that will preserve your credit rating and provide much needed debt relief.